Hope you're enjoying your Sunday afternoon, everyone. All of your Christmas Shopping done?
In scanning today's Chicago Tribune, and today's column by Real Estate Editor Mary Umberger, I read an interesting couple of paragraphs that average home equity across the U.S. has fallen by 10% since 2001. According to FED figures in their recent Flow of Funds study, average home equity six years ago was 56%. In the Third Quarter, 2007, the average equity figure, or current appraised market value minus total outstanding mortgage debt, fell to 50.4%.
Please click here to review Umberger's column today - here comments on the Home Equity Slide appear at the end of the column. Also see our thoughts and comments at BlogChicagoHomes.com.
For the last few years, pulling equity from your home, at a near-prime rate of interest, has been heavily promoted as a source of funds by banks and mortgage companies. It grew hand in hand with new loan programs which required less and less down payment to purchase - allowing many, many more homeowners across the U.S. to buy, but creating the time bomb many are experiencing today - of reduced equity, coupled with resetting adjustable-mortgage interest rates.
As we all know, irresponsible use of easy draws against home equity can considerably reduce available funds when moving to a new, bigger home. This is exasperated by recently-lowered property appreciation rates, here in Chicago and the Suburbs, and in many other parts of the country.
If you stay in your home while drawing on equity, you still have to pay the money back, often interest-only over 5 to 7 years, before the original principal balance is due! Many HELOC borrowers kind of forget that!
No pay back, if things get tight with money, you will lose your home!
That's serious as a heart attack, folks! Be careful, and have your clients do the same!
Happy Holidays!
DEAN & DEAN'S TEAM CHICAGO
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